Grocon Constructors Pty Ltd v Kimberley Securities Ltd

CATCHWORDS : CORPORATIONS - voluntary administration - deeds of company arrangement - creditor seeks orders setting aside resolution for execution of deed of company arrangement and terminating deed - various aspects of s 600A discussed - all positive votes were votes of related creditors, company officers or nominees holding debts purchased and paid for by director related entity - aspects of prejudice to non-assenting creditors discussed - fertile ground for examination of possible related party recoveries by liquidator

LEGISLATION CITED : Corporations Act 2001 (Cth), Part 5.3A, ss 9, 445D, 447A, 600A

Bell Group Ltd v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 70 ACSR 1 Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235; (2005) 226 ALR 510 Deputy Commissioner of Taxation v Portinex Pty Ltd [2000] NSWSC 99; (2000) 34 ACSR 391 CASES CITED : Deputy Commissioner of Taxation v Wellnora Pty Ltd (2007) 163 FCR 232; [2007] FCA 1234 Deputy Commissioner of Taxation v Woodings (1995) 16 ACSR 266 Earl of Chesterfield v Janssen (1750) 2 Ves Sen 125; 28 ER 82 Re Paradise Constructors Pty Ltd [2004] VSC 92; (2004) 8 VR 171 Wood v Laser Holdings Ltd (1996) 19 ACSR 245

Grocon Constructors Pty Limited - Plaintiff Kimberley Securities Limited - First Defendant John Vouris - Second Defendant PARTIES : Warren Pantzer - Third Defendant Lohemi Pty Limited - Fourth Defendant Gabriel Michael Lorentz - Fifth Defendant Nathan Stoliar - Sixth Defendant Building Insurers' Guarantee Corporation - Supporting Creditor

Mr J B Simpkins SC/Mr D P Manly - Plaintiff COUNSEL : Mr F C Corsaro/Mr F G Kalyk - First, Fourth, Fifth and Sixth Defendants Ms E A Collins - Second and Third Defendants Mr L P Geary, Solicitor - Supporting Creditor

Cosoff Cudmore Knox - Plaintiff SOLICITORS : Osborne & Associates - First, Fourth, Fifth and Sixth Defendants Addisons - Second and Third Defendants Mills Oakey Lawyers - Supporting Creditor

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2199/09 GROCON CONSTRUCTORS PTY LIMITED v KIMBERLEY SECURITIES LIMITED (ADMINISTRATORS APPOINTED) JUDGMENT

Proceedings and parties 1 The plaintiff ("Grocon") attacks a deed of company arrangement dated 21 April 2009 executed by the first defendant ("Kimberley"). The attack is resisted by Kimberley and also by the five other parties to the deed of company arrangement who are the remaining defendants - Mr Vouris and Mr Pantzer (the deed administrators), Lohemi Pty Ltd and Mr Lorentz and Mr Stoliar (directors of Kimberley). 2 The attack on the deed of company arrangement is mounted mainly by reference to s 600A and s 445D of the Corporations Act 2001 (Cth). By relying on s 600A, of course, Grocon really attacks, in a direct sense, the resolution of creditors by which execution of the deed was approved. Grocon also places reliance on s 447A. Events leading to the execution of the deed of company arrangement 3 Before referring to the matters on which Grocon relies, I should say something about the events leading up to the execution of the deed of company arrangement. 4 Kimberley was a property development company. On 19 December 2008, Mr Vouris and Mr Pantzer became the administrators of Kimberly under Part 5.3A of the Corporations Act. They were appointed pursuant to a resolution of Kimberley's directors. The first meeting of creditors in the administration was held on 31 December 2008. A motion that a committee of creditors be appointed was not carried. Mr Vouris and Mr Pantzer continued in office as administrators. 5 The second meeting of creditors commenced on 28 January 2009. A report of the administrators previously circulated was tabled and discussed. After a number of matters had been dealt with, it was resolved that the meeting "be adjourned for a period of up to 45 business days". 6 On 20 March 2009, Mr Vouris gave notice that a meeting of creditors would be held on 30 March 2009. This was really a continuation of the meeting that commenced on 28 January 2009. The notice was accompanied by a supplementary report of the administrators dated 20 March 2009. The report referred to a number of matters, including a proposal for a deed of company arrangement received from "the directors". The administrators expressed an opinion that "it would be in the best interests of creditors to accept the proposal for a deed of company arrangement as it may provide for a greater and more certain return to creditors than a winding up of the company". 7 A further supplementary report to creditors dated 26 March 2009 was circulated by the administrators. It dealt with a number of matters that had been raised in a letter from Grocon's solicitors, Cosoff Cudmore Knox, after release of the report of 20 March 2009. 8 At the reconvened meeting of creditors held on 30 March 2009, the following resolution was passed: "That the company execute a deed of company arrangement as detailed in the administrators' report to creditors dated 20 March 2009." 9 Of the 22 creditors who voted on a poll, 17 (accounting for $13,585,530.11) voted in favour of the adoption of the deed of company arrangement and five (accounting for $5,557,864.89) voted against. In terms of regulation 5.6.21(2), therefore, the resolution was carried. The deed of company arrangement 10 Mr Vouris and Mr Pantzer became the administrators of the deed of company arrangement. They were required by clause 2.1 to establish a "Deed Fund" into which were to be deposited a sum of $180,000 provided by the "Secured Creditor" on or before 30 June 2009 and a further sum of $180,000 provided by the "Secured Creditor" on or before 30 June 2010. The "Secured Creditor" is Lohemi Pty Ltd ("Lohemi"). 11 By clause 2.3, it is provided that the Deed Fund will be "distributed as the Deed Administrators sees [sic] fit", first, in meeting costs, expenses and remuneration of the voluntary administrators, second meeting costs, expenses and remuneration of the Deed Administrators in the administration of the deed and, third: "Creditor Claims will be paid in that order of priority as is fixed by section 556 of the Act as applies to winding up of a company." 12 "Creditor Claims" is not defined, but there is a definition of "Creditor" ("any person who has a Claim against the Company") and a definition of Claim: "'Claim' means any action, demand, suit, proceeding, debt, claim, loss, damage or other liability (whether present or future, certain or contingent, ascertained or sounding only in damages) whatsoever and howsoever incurred and arising directly or indirectly from any act or omission by the Company or by any agreement, circumstance or event occurring on or before the Commencement Date." 13 The "Commencement Date" is 19 December 2008. 14 It is provided by clause 2.5 that the directors of Kimberly and "Related Entities" of Kimberley "shall not prove in this Deed Fund (except for voting purposes only)" in respect of their "Claims", which "will remain debts of the Company after the Deed has been effectuated, and are thereby not discharged". Clause 2.6 says that Lohemi (the Secured Creditor) is not entitled to prove in or enforce its security over the deed fund; and that its claims are not extinguished by the deed. 15 The term "Related Entity" is defined as "related entity as defined by the Act", that is, the Corporations Act. The s 9 definition of "related entity" is thus imported. 16 It is provided by clause 7 that creditors other than Lohemi, the directors and the related entities "must accept their entitlements under this Deed in full satisfaction and complete discharge of" their claims. Under clause 4, the directors are entitled to exercise their powers in full during the currency of the deed, but are precluded from "interfering in or countermanding" the deed administrators' powers. 17 The general import of the deed is thus that creditors other than Lohemi and the directors and "related entities" of Kimberley, within the s 9 definition of that term, will share in whatever remains of the deed fund after payment of the costs, disbursements and remuneration of Mr Vouris and Mr Pantzer as voluntary administrators and administrators of the deed of company arrangement; that the claims of those creditors will thereby be deemed satisfied in full; that the claims of Lohemi and the directors and "related entities" will remain enforceable against Kimberley; and that Kimberley will continue under the stewardship of its directors into the future. Section 600A 18 Section 600A(1) sets out circumstances in which the court may make an order under s 600A(2). Section 600A(1) is in these terms: "(1) Subsection (2) applies where, on the application of a creditor of a company or Part 5.1 body, the Court is satisfied: (a) that a proposed resolution has been voted on at: (i) in the case of a company--a meeting of creditors of the company held: (A) under Part 5.3A or a deed of company arrangement executed by the company; or (B) in connection with winding up the company; or (ii) in the case of a Part 5.1 body--a meeting of creditors, or of a class of creditors, of the body held under Part 5.1; and (b) that, if the vote or votes that a particular related creditor, or particular related creditors, of the company or body cast on the proposed resolution had been disregarded for the purposes of determining whether or not the proposed resolution was passed, the proposed resolution: (i) if it was in fact passed--would not have been passed; or (ii) if in fact it was not passed--would have been passed; or the question would have had to be decided on a casting vote; and (c) that the passing of the proposed resolution, or the failure to pass it, as the case requires: (i) is contrary to the interests of the creditors as a whole or of that class of creditors as a whole, as the case may be; or (ii) has prejudiced, or is reasonably likely to prejudice, the interests of the creditors who voted against the proposed resolution, or for it, as the case may be, to an extent that is unreasonable having regard to: (A) the benefits resulting to the related creditor, or to some or all of the related creditors, from the resolution, or from the failure to pass the proposed resolution, as the case may be; and (B) the nature of the relationship between the related creditor and the company or body, or of the respective relationships between the related creditors and the company or body; and (C) any other relevant matter." "Related creditor" 19 It is common ground that this case - and, in particular, the meeting on 30 March 2009 - is within s 600A(1)(a)(i)(A). It is therefore necessary to consider whether upon the resolution passed on that occasion with respect to the deed of company arrangement, votes were cast by "related creditors". 20 The term "related creditor" is defined in s 600A(3): " 'related creditor' , in relation to a company or Part 5.1 body, in relation to a vote, means a person who, when the vote was cast, was a related entity, and a creditor, of the company or body." 21 This directs attention to the definition of "related entity" in s 9, already mentioned: " 'related entity' , in relation to a body corporate, means any of the following: (a) a promoter of the body; (b) a relative of such a promoter; (c) a relative of a spouse of such a promoter; (d) a director or member of the body or of a related body corporate; (e) a relative of such a director or member; (f) a relative of a spouse of such a director or member; (g) a body corporate that is related to the first-mentioned body; (h) a beneficiary under a trust of which the first-mentioned body is or has at any time been a trustee; (i) a relative of such a beneficiary; (j) a relative of a spouse of such a beneficiary; (k) a body corporate one of whose directors is also a director of the first-mentioned body; (l) a trustee of a trust under which a person is a beneficiary, where the person is a related entity of the first-mentioned body because of any other application or applications of this definition." 22 The persons who voted in person or by proxy on the resolution were: (1) Australian Taxation Office Against (2) Arunta Investments Pty Ltd Against (3) Building Insurance Guarantee Corporation Against (4) Patrick Burke In favour (5) Brett McKechnie Consulting In favour (6) Coriander Investments Pty Ltd In favour (7) DTR Management & Financial Services Pty Ltd In favour (8) DTR Management Pty Ltd In favour (9) Marcel Esber Against (10) Fenugreek Holdings Pty Ltd In favour (11) Fobeca Pty Ltd In favour (12) Grocon Constructors Ltd Against (13) Green Grill Pty Ltd In favour (14) Hihawk Holdings Pty Ltd In favour (15) Lohemi Pty Ltd In favour (16) Leavers Constructions Pty Ltd In favour (17) Mushroom Catering Pty Ltd In favour (18) Opportune Pty Ltd In favour (19) Ole Holdings Pty Ltd In favour (20) Paccito Pty Ltd In favour (21) Selwan Property Holdings Pty Ltd In favour (22) Vipet Holdings Pty Ltd In favour

23 It is conceded that eleven of these creditors - Nos (6), (7), (8), (10), (11), (14), (15), (18), (19), (21) and (22) are "related entities" of Kimberley and therefore "related creditors" within s 600A(3). The "related entity" status, as against Kimberley, is accepted as arising under paragraph (k) of the s 9 definition by reason of the fact that a director of the particular company is, in each case, also a director of Kimberley. 24 Special mention must be made of Lohemi (No (15)). It is a company of which Mr Lorentz, at least, is a director and which is said by Mr Cudmore, Grocon's solicitor, in a letter dated 25 March 2009 to be "controlled by Mr Lorentz and Mr Stoliar". Lohemi considers itself to hold security from Kimberley to which it will be necessary to refer presently. Only part of Kimberley's indebtedness to Lohemi is secured. Section 600A(1)(b) is satisfied 25 All eleven related creditors just mentioned voted in favour of the resolution for the adoption of the deed of company arrangement. They accounted for $13,560,291 by value. Had their votes been disregarded, six creditors accounting for $25,239 would have been taken into account in favour of the resolution and the five (accounting for $5,557,804) who actually voted against would have been taken into account against. The position would then have been that there was a majority in number in favour but a majority by value against, so that it would have been open to the chairperson, under regulation 5.6.21(4), to exercise a casting vote. 26 The case is therefore within the concluding words of s 600A(1)(b): "the question would have had to be decided on a casting vote". The s 600A(1)(c) inquiry 27 Since the case is within both s 600A(1)(a)(i)(A) and s 600A(1)(b), the question whether it is open to the court to make an order under s 600A(2) turns on whether the resolution approving the deed of company arrangement is within s 600A(1)(c)(i) or (ii). 28 One aspect of the facts requiring close attention in that connection is that concerned with the buying of debts. The buying of debts 29 I have referred at paragraph [22] above to the persons who voted in favour of the resolution of 30 March 2009. I have also referred to the eleven of those persons who voted in favour and are "related creditors" within s 600A(3). It is relevant to mention the circumstances of each of the other six persons who voted in favour. 30 It is necessary at this point to refer to a number of individuals. Kimberley has three directors. They are Mr Scown, Mr Lorentz and Mr Stoliar. Each of them is also a director of a company called Selwan Property Holdings Pty Limited. I shall refer to it as "Selwan". 31 The secretary of Kimberley is Mr Burke. He is also the secretary of Selwan. Mr Burke is No (4) in the list of voting creditors at paragraph [22] above. As a creditor in his own right, Mr Burke voted in favour of the deed of company arrangement. 32 Each of Nos (5), (13), (16), (17) and (20) in the list of creditors at paragraph [22] above - Brett McKechnie Consulting, Green Grill Pty Ltd, Leavers Constructions Pty Ltd, Mushroom Catering Pty Ltd and Paccito Holdings Pty Ltd - voted by proxy in favour of the adoption of the deed of company arrangement. Each appointed either Mr Burke (Kimberley's secretary) or Mr Lorentz (a director of Kimberley) as its proxy. 33 The circumstances in which each of Nos (5), (13), (16), (17) and (20) became a creditor of Kimberley were the subject of evidence. The circumstances were the same in each case, including, very substantially, as to timing. The circumstances may be illustrated by considering the case of No (17), Mushroom Catering Pty Ltd. 34 As at 9 December 2008, Kimberley became indebted in the sum of $1,210 to Taren Constructions Pty Ltd for labour and materials related to rectification of defects on a building at or known as Babworth Estate. An invoice from Taren Constructions dated 9 December 2008 addressed to Kimberley is in evidence. On 11 December 2008, Selwan paid $1,210 to Taren Constructions. This followed a letter of 10 December 2008 from Selwan to Taren Constructions in these terms: "I request that you kindly sign the statement at the bottom of this page and return to Selwan Property Pty Limited (Selwan), at which time funds will be provided by Selwan in your choice of cheque or EFT." 35 The letter was signed by Mr Burke as secretary of Selwan. The "statement at the bottom of this page" was: "In consideration of the payment by Selwan of the sum of $1,210.00 we hereby assign to Mushroom Catering Pty Limited the debt in the same amount that is owing to us by Kimberley Securities Limited." 36 This statement was purportedly signed on behalf of Taren Constructions. 37 It thus appears that, eight days before the directors of Kimberley appointed administrators, Selwan paid to Taren Constructions an amount equal to the debt owed by Kimberley to Taren Constructions and that Taren Constructions, at the request of Selwan and ostensibly in consideration of the payment, stated in writing - apparently to Selwan ("kindly sign the statement at the bottom of this page and return to Selwan Property Holdings Pty Limited") - that it assigned to Mushroom Catering the debt of $1,210 owed by Kimberley to Taren Constructions. 38 Argument before me proceeded on the footing that there was thereby a valid and effectual assignment of the Kimberley debt of $1,210 by Taren Constructions to Mushroom Catering. I therefore do not pause at this point to examine the correctness of that proposition. 39 Mushroom Catering was not a creditor of Kimberley otherwise than by reason of the debt assigned to it by Taren Constructions. There was no apparent commercial reason why Mushroom Catering should have taken the assignment of debt. It did not, on the face of things, have any relationship with any other relevant entity. Nor, as Mr Lorentz confirmed, did Mushroom Catering make any payment to Selwan. 40 A rationale of sorts for the making of the payment by Selwan to Taren Constructions was suggested by Mr Lorentz in the course of cross-examination. He said that there was a concern about the financial position of Kimberley from the beginning of December 2008 and a consciousness of the dangers of insolvent trading. It was for that reason, he said, that Selwan (of which, as I have said, all the Kimberley directors were directors and the Kimberley secretary was secretary) paid creditors of Kimberley. 41 Returning to Taren Constructions as a typical case, that, however, does not explain why there was, in conjunction with the payment by Selwan to Taren Constructions, an assignment of debt by Taren Constructions to Mushroom Catering. That matter was dealt with by Mr Lorentz as follows:

"HIS HONOUR Q. Let me ask you this, if I may, Mr Lorentz. Remind me what position you held within Selway? A. I am the Managing Director of that company.

Q. You are the Managing Director. In your thinking what benefit did Selwan get by making the payments to the Kimberley creditors in return for assignment of the debts to outside parties such as Mushroom and Green Grill? A. Well, the main purpose was that it got payment not by Kimberley, so that it wouldn't be potentially, at that stage we didn't know whether the company was solvent, but we had an idea that it might not have been and we didn't want to make any payments that could have been treated as preference, so we made the payments in another company. I caused the ordinary creditors of Kimberley for its activities to be all paid and they all got paid by Selwan. When we paid those people we also got an assignment of their debts. That's a normal commercial matter.

Q. Wouldn't it have been more beneficial to Selwan to have taken the assignment itself so that if something was to be salvaged Selwan would have it? A. Well, that is the decision that we made.

Q. That what is I can't understand, why people like Mushroom and Green Grill were introduced as assignees of debts for which Selwan paid? A. Well, I have agreed with Mr Simpkins to the effect that I was conscious of the fact that I may get a vote relating to those assignments though there was no written or verbal agreement with any of these people that I would get a vote." 42 Mr Lorentz's reference here to what he had "agreed with Mr Simpkins" is a reference to a part of his cross-examination that culminated in the following exchanges: "Q. I am putting to you, Mr Lorentz, that your intention in this whole process of obtaining the assignment of debt was to put yourself in a position where you could control any meeting of creditors held by an administrator of Kimberley Securities Limited; isn't that right? A. Potentially relating to numbers. The main part of any creditors meeting relates to value and these debts didn't amount to any substantial value so--

Q. But you understood-- A. So these debts could not control the meeting.

Q. You understood in the context of this kind of meeting number versus value was an important consideration? A. Potentially, yes.

Q. And what you wanted to make sure would happen is that your wishes about what the administration should do would be given effect to; isn't that right? A. Sorry?

Q. You wanted to make sure that at any meeting of creditors called by an administrator of Kimberley Securities Limited your wishes would be given effect to? A. I am a creditor of Kimberley Securities Limited. I am by far the largest creditor and, therefore, I do have certain decisions that are relating to the company and, yes, I would want those things to be carried out, but, yeah, if that's what you mean, yes." 43 At an earlier point, the following exchange occurred: "Q. Your intention in having these assignments made, not to the party making the payment, namely, Selwan Property Holdings Pty Ltd, but to Brett McKechnie Consulting and other third parties, was that you would be in a position to have your wishes met at any meeting of creditors in the event that an administrator was appointed. Isn't that right? A. That I potentially would have votes at that meeting, yes." 44 Mr Lorentz said that the arrangements with Mushroom Catering and the other assignees (see paragraph [32] above) were not made by him. By that he obviously meant that he did not have direct contact with the assignees. That was left to Mr Burke. But, as Mr Lorentz accepted, he knew what was happening. And given his desire, acknowledged in cross-examination, to exert influence at any meeting of creditors (see the last part of the cross-examination at paragraph [42] above), there can be no real doubt that Mr Lorentz was an active participant in the events involving assignment of debts. 45 Certain attributes of the five assignees should be mentioned. Three of them - Nos (13), (17) and (20) - were companies of which Mr Anthony Paccito was a director. Mr Lorentz testified that he had never met Mr Paccito and never heard of him. One assignee, Mr McKechnie (No (5), is the principal of a consulting firm used by Kimberley. Mr Lorentz said he had met Mr McKechnie often. The remaining assignee, No (16), is a company of which Richard Leavers and Lyndal Leavers are the directors. Mr Leavers is a former project manager of Kimberley. 46 There is thus a demonstrated prior connection between Kimberley and each of No (5) and No (16). In the cases of Nos (13), (17) and (20), there is no evidence of a prior connection between them or Mr Paccito and Kimberley but there is evidence that Mr Burke arranged the assignments, from which it may be inferred that he had relevant dealings with Mr Paccito. The plan of which the buying of debts formed part 47 The evidence makes it plain that:

(a) Selwan, a company of which Kimberley's directors were directors (and of which the secretary of Kimberley was secretary), paid money of its own to apparently bona fide arm's length creditors of Kimberley whose debts arose in the ordinary course of commercial dealing;

(b) each such payment by Selwan induced the particular bona fide creditor of Kimberley to assign its debt to an entity nominated by Selwan;

(c) Selwan obtained no obvious commercial benefit from the outlay of funds in this way;

(d) the purpose of Selwan was to cause the debts of the bona fide creditors of Kimberley to become vested in the entities nominated by Selwan;

(e) from each nominated entity's point of view, the Kimberley debt was received effectively by way of gift and in circumstances where the entity's financial and economic welfare would not be affected one way or the other if the Kimberley debt was entirely worthless; and

(f) none of the nominated assignee entities had any real commercial reason or incentive (in the sense of a desire to avoid or minimise loss) to interest itself in the financial affairs of Kimberley or the recoverability or otherwise of the assigned debt. 48 Mr Lorentz was at pains to say in his evidence that "there was no written or verbal agreement with any of these people that I would get a vote" - that is, that there was no agreement that "these people", having become the assignees (by means of financial outlays by Selwan) of Kimberley debt, would then act as Mr Lorentz ("I") or Kimberley's directors (who had engineered the assignments to them) might direct or desire concerning creditor voting. 49 It is, in my opinion, impossible to hypothesise any other plausible reason why the several assignees should have participated in the way they did. 50 There is no direct evidence as to whether the assignees were approached before Selwan made the payments to the bona fide Kimberley creditors and had those creditors assign their debts to the several nominated assignees. But there is an irresistible inference that they were; and that each had agreed to co-operate with Selwan before Selwan approached the bona fide creditors. I say this because each letter from Selwan to a bona fide creditor identified the relevant assignee: see paragraph [35] above. Selwan would not have nominated someone as assignee unless it knew that that person was willing to play the envisaged role. 51 All the assignees, without exception, afterwards made proxy appointments in favour of Mr Lorentz and Mr Burke. There was, of necessity, communication between someone in the Kimberley/Selwan camp and each assignee at or before that point. Apart from anything else, no assignee would have been aware that the debt had become vested in it unless informed by someone else, given that the assignments were arranged, procured and paid for by Selwan. 52 On Mr Lorentz's evidence, the probability is (and I find) that it was Mr Burke who made each such communication and that, in each case, the communication was made before Selwan wrote to the external creditor of Kimberley with the request that the assignment be executed. None of the assignees had any incentive of its own to appoint anyone as proxy to vote for it at a meeting of Kimberley's creditors. 53 The directors and the secretary of Kimberley, in their capacity as directors and secretary of Selwan, deployed the financial resources of Selwan to ensure that certain debts owed by Kimberley became vested in entities controlled by persons on whom they could rely, with each such entity making no financial outlay and incurring no financial risk and being willing to give a proxy to Mr Lorentz or Mr Burke. The assignees made the proxy appointments as part of the plan conceived and executed by the directors and secretary of Kimberley to obtain control of the voting power attached to the assigned debts. 54 The case was argued on the footing that the Selwan procured creditors such as Mushroom Catering became assignees of the debts owed by Kimberley to the external creditors such as Taren Constructions. But, of course, the money paid to the several assignees was Selwan's money and it was paid by Selwan. That is indicative of a purchase by one person in the name of another, so that the second person holds as a nominee upon a resulting trust for the first person as the real purchaser. 55 Mr Lorentz offered no real explanation when asked why Selwan, having paid the external creditors, did not itself become the assignee of their debts: see the latter part of the transcript extract at paragraph [41] above. The real reason is not difficult to see. Creditor status for Selwan itself would have been counterproductive when it came to the matter of acquiring voting power for the purposes of a Part 5.3A meeting. In the first place, Selwan was "a related entity" of Kimberley, so that any votes it cast as a creditor could immediately have been called into question by reference to s 600A(1)(b). Second, for all five external debts to be assigned to Selwan would have produced only one new creditor, not five. 56 The true position was that Selwan, a vehicle controlled by Kimberley's directors, purchased the debts of the five external creditors with money of its own but in the names of what were really five nominees; and that it did so to ensure that voting power was ostensibly in the hands of the five nominees but in the knowledge that the nominees, with nothing financially at stake and no reason to take any independent interest, would - or, at least, would be likely to - co-operate with the directors of Kimberley when it came to the matter of voting at any meeting of creditors. 57 The five assignees were, in reality, so aligned with the directors of Kimberley and devoid of interests of their own that, although not strictly within the "related entity" definition in s 9, they were in substance related entities. The transactions involving the five external creditors and the five assignees were, in short, an artifice to give an air of arm's length independence to a device by which voting power at any meeting of creditors was put into the hands of the Kimberley directors, with mere nominees being made to appear to possess the voting power. 58 An essential element of the plan was to enhance the number of votes that could be controlled having regard to numbers of creditors voting. Creditors' voting power, as Mr Lorentz well knew (see the extract from his evidence at paragraph [42] above), had two dimensions to it in the context of a meeting of creditors under Part 5.3A. In order to be passed at such a meeting without the intervention of a casting vote, any proposal had to be approved by creditors representing a majority in number of the creditors voting and a majority by value of the claims (as admitted for voting purposes) of the creditors voting. Mr Lorentz and his colleagues would have had no concern on the matter of value: Lohemi, a company controlled by Mr Lorentz and Mr Stoliar, was represented as owed a sum that exceeded all other possible claims combined. It was at the level of a majority in number (that is, on a head count) that Mr Lorentz and his colleagues had no assurance of success. It was in order to manufacture that assurance that the arrangements with the several assignees were made. 59 In summary, the directors and secretary of Kimberley, acting in their corresponding capacities within Selwan, implemented a strategy deliberately aimed at enhancing their chances of controlling, at the head count level, creditor voting that they already controlled at value level because of the magnitude of the Lohemi debt. 60 Another point must be emphasised. The effect of Selwan's actions was to cause certain creditors of Kimberley (being Taren Constructions and the other assignors) to receive money equivalent to the debts owed to them by Kimberley. True it is that their debts were not paid and that the moneys they received were in the nature of consideration for the assignment of their debts to the Selwan nominees. Taren Constructions, for example, received $1,210 from Selwan and assigned its debt to Mushroom Catering. The assignors thereby ceased to be creditors of Kimberley. They were in the same financial position as if their debts had been paid. It may be assumed, taking again the case of Taren Constructions, that it was indifferent to the precise legal classification of the $1,210 it received. Having received it, Taren Constructions had no further interest in the financial position of Kimberley. The significance of the cornering of voting power 61 As noted earlier, the motion for the adoption of the deed of company arrangement was supported by 17 creditors accounting for debts of $13,585,530.11 and opposed by five creditors accounting for $5,557,864.89. As also noted earlier, the eleven creditors within the s 600A(3) definition of "related creditor" (accounting for debts of $13,560,291) were among the 17 who voted in favour. The remaining six who voted in favour were Mr Burke (Kimberley's secretary) and the five entities Nos (5), (13), (16), (17) and (20) for whom creditor status was arranged by Selwan and which were in substance Selwan's nominees. The debt of Mr Burke, as admitted for voting purposes, was $1,770. The debts of the five Selwan procured creditors totalled $23,466. 62 Every vote in favour can thus be seen to have been the vote of a "related creditor" (as defined by s 600A(3)), the vote of a Selwan procured creditor (which became a creditor at the instigation of Selwan and without financial outlay of its own) or the vote of the individual who orchestrated the procuring of voting power by Selwan. 63 Had all these votes been ignored, the outcome would have been that there were no votes in favour of the adoption of the deed of company arrangement and that five creditors voted against the adoption. 64 Furthermore, the five creditors voting against would have been seen to be arm's length creditors with substantial debts: Australian Taxation Office (admitted, for voting purposes, at $1,693,081), Arunta Investments Pty Ltd (admitted for voting purposes at $75,706), Building Insurance Guarantee Corporation (a creditor who appeared upon the hearing of these proceedings in support of the plaintiff and who was admitted for voting purposes at $1,587,093), Marcel Ebser (a judgment creditor admitted for voting purposes at $388,077) and Grocon, the present plaintiff (admitted for voting purposes at $1,813,906). The total of the claims of these creditors is $5,557,964. 65 It is instructive to review, in the context of this account of the voting dynamics, the actual operation and effect of the deed of company arrangement. As I have said, the deed fund is available only to creditors who are not directors or "related entities", as defined by s 9 of the Corporations Act - see paragraph [21] above. The debts of creditors who are not directors or related entities are extinguished by the deed upon distribution in full of the deed fund. The debts of all other creditors - that is, those who are directors or "related entities" - remain unextinguished and continue as undiminished obligations of Kimberley notwithstanding the advent of the deed of company arrangement. Of the creditors who voted in favour of the adoption of the deed, all but six (that is, eleven out of 17) were votes of related entity creditors and the remaining six were the vote of Mr Burke and the votes of the five Selwan procured creditors. It was thus the related entity creditors, with the support of Mr Burke and the five Selwan procured creditors, who ensured, first, that the directors and related entity creditors would not participate in the deed fund and would retain their debts in unextinguished and undiminished form; and, second, that the creditors other than directors and related entity creditors (including Mr Burke, for his $1,770, and the five Selwan procured creditors for their total of $23,466) would, for their aggregate claims exceeding $5.5 million, be confined to participation in the deed fund and have their debts extinguished. And, of course, the five Selwan procured creditors did not stand to suffer at all by that treatment as they had been given money equivalent to their debts and had none of their own money at stake. 66 Leaving to one side the five Selwan procured creditors (ostensibly interested to the extent of a combined $23,466 but in fact having nothing at all at stake) and Mr Burke ($1,770), all the creditors whose debts stood to be extinguished by the deed and attract an entitlement to participate in the deed fund voted against the adoption of the deed. All creditors whose debts would continue in unextinguished and undiminished form voted in favour of the adoption of the deed, as did Mr Burke and the Selwan procured creditors. 67 The situation was thus one in which all the creditors who were not related entities, Selwan procured creditors or Kimberley officers and who cast votes expressed, by those votes, a desire that the debts of all creditors without exception should remain unextinguished and should not participate in the deed fund, while the related entity creditors (helped by Mr Burke and the Selwan procured creditors) forced on the generality of the creditors the very position that the first-mentioned group preferred to avoid while, at the same time, retaining that position for themselves. Putting this another way, exercise of the combined voting strength (both as to number and as to value) of the related entity creditors, Mr Burke and the Selwan procured creditors secured for the directors and the related entity creditors as a class and denied to the remaining creditors as a class the outcome that every member of each class who voted on the scheme of arrangement proposal wished personally to enjoy. 68 Leaving to one side Mr Burke and the Selwan procured creditors, no creditor expressed, by the creditor's vote, a wish to see the creditor's own debt subjected to extinguishment and deed fund participation. On the contrary, every such creditor expressed a wish that the creditor's own debt should continue as an undiminished obligation of Kimberley unaffected by the deed. The related entity creditors, assisted by Mr Burke and the Selwan procured creditors, ensured that they themselves enjoyed the result thus desired by all and that creditors other than directors and related entity creditors did not enjoy the result thus desired by all. Applying s 600A(1)(c) 69 It is pertinent, at this point, to refer to a species of equitable fraud identified by Lord Hardwicke in a passage in Earl of Chesterfield v Janssen (1750) 2 Ves Sen 125; 28 ER 82 quoted with approval by Owen J in Bell Group Ltd v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 70 ACSR 1 at [4860]. His Lordship said at 100: "Where a debtor enters into a deed of composition with his creditors for 10s in the pound, or any other rate, attended with a proviso that all creditors executed this within a certain period, if the debtor privately agrees with one creditor to induce him to sign this deed, that he will pay or secure a greater sum in respect of his particular debt: in this there can be no particular deceit on the debtor, who is party thereto: but it tends to deceit of the other creditors, who relied on an equal composition, and did it out of compassion to the debtor. This court therefore relieves against all such underhand bargains." 70 This observation of Lord Hardwicke was quoted by Hansen J in Wood v Laser Holdings Ltd (1996) 19 ACSR 245, a case concerning a deed of company arrangement, the facts of which warrant attention in the present context. 71 The resolution of the creditors of Laser approving the adoption of the deed of company arrangement received the support of 22 of the 35 creditors who voted. After elimination of the votes of acknowledged related creditors, there were 18 creditors representing $91,971 in favour and 13 creditors representing $400,729 against. It was established, however, that a company called Sencon (a member of the Stuart Group) had, in Hansen J's words, "purchased the debts of 13 creditors". These 13 included eleven who voted in favour of the deed of company arrangement proposal. One Cookes in fact cast their votes, as proxy. Cookes was a director of Sencon. He was also a director of Laser itself. He wished to promote, with the aid of the deed of company arrangement, a transaction by which the Stuart Group (of which Sencon formed part) acquired control of Laser. 72 A key finding of Hansen J was recorded as follows at 264: "When Cookes lodged and voted the 11 proxies the impression would have been that in truth there were 11 separate creditors. Of course, from Laser's point of view, there were 11 debts. But as they were owned by Sencon Pty Ltd and the related proxies were held by Cookes those votes too were votes of related creditors for the purpose of s 600A. In the result it is evident that if the votes of related creditors had been disregarded the resolution to execute a deed would have been lost." 73 His Honour also said at 265: "By not giving Cole [the chairman of the meeting] notice of the purchases, lodging the proxies and not making disclosure to the meeting Cookes, or Sencon Group/Laser and any in this group who attended the meeting and had knowledge, allowed or encouraged a false and misleading impression as to the status of the 11 debts. In substance if not in law there were not then 11 separate creditors, but one creditor in respect of the 11 debts." 74 Hansen J's conclusions with respect to s 600A(1)(c) were stated at 269: "The question is whether the passing of the resolution was contrary to the interests of creditors as a whole or the class that voted against it (s 600A(1)(c)(i)). In my opinion it was. It was plainly disadvantageous. The alternate question is whether the resolution has prejudiced, or is reasonably likely to prejudice, the interests of the creditors who voted against it to an extent that is unreasonable. In my opinion that requirement (s 600A(1)(c)(ii)) is satisfied: the disadvantage or prejudice is plain and significant in a material sense, the overall benefit is in a real sense only or overwhelmingly for the Stuart Group for its commercial purposes and not for the aid of the creditors as a whole, some creditors were advantaged by private dealings in exclusion of the creditors as a whole, and there are the attendant circumstances of deception of the creditors and the administrator." 75 I would prefer to leave to one side his Honour's conclusion on s 600A(1)(c)(i). This is because, in my view, when that provision speaks of "that class of creditors as a whole", it does not refer to the "class" consisting of creditors who voted for or creditors who voted against. Rather, the "class of creditors" referred to is that identified in s 600A(1)(a)(ii), that is, a class to which a class meeting convened under Part 5.1 pertains. 76 For present purposes, however, Hansen J's conclusion in relation to s 600A(1)(c)(i) is both relevant and instructive. His Honour's decision was summarised as follows in Bell Group Ltd v Westpac Banking Corporation (No 9) (above) at [4898]: " Wood v Laser Holdings Pty Ltd (1996) 19 ACSR 245 also concerned a deed of company arrangement. Eleven of the 22 creditors who voted in favour of executing a deed of company arrangement had, prior to the meeting, sold their debts and given their proxies to a person who had been negotiating with the directors to take control of the company. This was not disclosed to the other creditors at the meeting, or to the administrator. The court set aside the deed. Hansen J, at 267, said that what the third party achieved might fairly be described as an 'underhand bargain'. It was selective among the creditors to achieve his own ends and not for the purpose of advancing the best interests of the creditors as a whole. When the votes were taken neither the administrator nor the creditors (other than those who had sold their debts) knew that such sales had occurred, and nor did the administrator. Again, this centres on equality of treatment and is also a common dealing case." 77 In the present case, the passing of the resolution for the adoption of the deed of company arrangement entailed clear prejudice to the five creditors who voted against the resolution. Directors of Kimberley, acting through Selwan, engaged in private and undisclosed dealings with certain creditors of Kimberley in the lead-up to the Part 5.3A administration for reasons which obviously included, as a predominant reason, the enhancement of the voting power at the disposal of Kimberley's officers at the meetings of creditors that would inevitably be held in the course of the administration. That Selwan's funds were outlaid for this purpose shows that Selwan thought it beneficial to see the potential voting pattern altered; and, of course, Selwan had no thoughts other than those housed in the heads of Kimberley officers who were its directors. The interests of the creditors who voted against the crucial resolution eventually placed before a meeting of creditors were prejudiced by the exertion at that meeting of this actual influence of a related entity masquerading as the influence of arm's length parties. 78 There was a second and no less serious way in which the interests of the five creditors voting against the resolution were prejudiced. As noted already, the votes of the acknowledged related party creditors, together with the votes of Mr Burke and the Selwan procured creditors, denied to the five creditors opposing the deed the position they wished to occupy, being a position assured by the deed for directors and related entity creditors. I refer, of course, to the position where debts were not extinguished and there was no right of participation in the deed fund. The five creditors were denied that position by the persons who were themselves to occupy it and associates of those persons. "Unreasonable" prejudice and the matters in s 600A(1)(c)(ii)(A), (B) and (C) 79 It remains to consider whether the identified prejudice is "unreasonable" having regard to any of the matters referred to in s 600A(1)(c)(ii)(A), (B) and (C). 80 In Deputy Commissioner of Taxation v Portinex Pty Ltd [2000] NSWSC 99; (2000) 34 ACSR 391 at [89], Austin J said that the question of unreasonable prejudice "seems to boil down to whether the creditors are better off with the proposed deed or liquidation, as there is no other alternative on the facts". In the present case, there is, in one sense, no real need for any separate and objective inquiry into that matter. The five dissenting creditors made it quite clear by their votes that they did not want the deed of company arrangement and that, by necessary implication, they preferred winding up. 81 The fact that those five creditors wished to avoid extinguishment of their debts and fund participation pursuant to the deed and that the related creditors, Mr Burke and the Selwan nominees had a precisely corresponding wish brings the matter within s 600A(1)(c)(ii)(A). The related creditors and their associates obviously saw benefits to themselves in standing aside from the scheme of debt extinguishment and fund participation. Had they not seen such benefits, they would not have taken the action that caused the deed to be adopted. 82 If, however, objective inquiry is needed, it readily supports the view that, on the materials before creditors, there was, in an immediate sense, very little difference between winding up and the deed proposal from the point of view of those creditors whose debts were to be subjected to the deed. In a report to creditors dated 20 March 2009, the administrators set out in tabular form their estimated returns to creditors under the proposed deed of company arrangement and in a winding up. There was, in each case, an "optimistic" estimate and a "pessimistic" estimate. In the case of winding up, both "optimistic" and "pessimistic" outcomes were zero. Under the proposed deed, the "optimistic" outcome was 3.96 cents in the dollar and the "pessimistic" 1.18 cents in the dollar - in other words, only very marginally better than zero in each case. 83 The administrators' opinion, as expressed in the report of 20 March 2009 in summary form, was that the proposed deed "is not expected to provide a significant return to creditors" but "may provide a greater and more certain return than a winding up". 84 Any creditor considering this report would have seen quite clearly that, in terms of estimated return, there was very little at all to choose between the two possibilities. Many, if not most, would have taken the conservative view that the deed was probably more likely to yield the "pessimistic" 1.18 cents in the dollar, so that someone with a debt of $10,000 might expect $118 and someone with a debt of $100,000 might expect $1,180. The return, in each case, would be so small as to be negligible in practical terms. No one with an eye to their own financial interests would regard such a return as worth pursuing with any greater vigour than one might expend in picking up a coin found lying on the pavement. 85 One matter covered in the administrators' several reports was the question of possible recoveries by a liquidator in the case of winding up. That is a matter that deserves attention and analysis. 86 The estimates given by the administrators in relation to winding up did not include anything for recoveries a liquidator might make on account of unfair preferences, insolvent trading and other causes of action made available to a liquidator alone. There was reference to possibilities in relation to preference recovery and insolvent trading claims coupled, however, with warnings about uncertainty and expense. The general message was that these avenues might not be productive unless substantial outside financing became available to a liquidator; and that even then, the prospects of appreciable recoveries might be problematic. 87 Mentioned only in passing in the administrators' earlier reports to creditors (there were three such reports in all) was what the second report (20 March 2009) called "a written undertaking from a related party to provide financial assistance". That second report mentioned the undertaking in connection with a reference to Kimberley's accounts having been prepared on a going concern basis. It did so in general terms only. 88 But in the third report to creditors (the further supplementary report of 26 March 2009), the related party is identified as Opportune Pty Ltd. There is evidence that, in each of several recent financial years, Opportune, over the signature of Mr Lorentz as its managing director, wrote to the directors of Kimberley as follows: "Our company will provide all necessary financial support to Kimberley Securities Limited and it [sic] controlled entities for a period of 12 months from the date of the Directors' Report in order for the Company's and Consolidated Entity's financial reports to be prepared on going concern basis. We further confirm that Opportune Pty Ltd and/or related Director Companies has the financial resources to provide this undertaking. The cashflow that has been prepared to show the level of funding required is attached to this undertaking." 89 Each such letter was copied to Kimberley's auditors. 90 Under promptings from Grocon's solicitors, the administrators gave creditors details of the Opportune undertakings in the report of 26 March 2009, noting that preparation of Kimberley's annual accounts on a going concern basis was "a result of" the undertaking. They added that the directors of Opportune were Mr Lorentz and Mr Stoliar, two of Kimberley's own directors. The administrators went on to say that they were without resources to obtain legal advice on the enforceability of the Opportune undertaking and that they could not assess the financial strength of Opportune. They referred, however, to an affidavit in other proceedings which "states that Opportune had a negative net asset position in the sum of $3,368,517.83 as at 30 June 2006". There was also reference to management accounts of Opportune to 30 June 2008 indicating "a negative net asset position of $2,596,095.33". 91 The use to which the Opportune undertaking was put is shown by the published financial statements of Kimberly. In the notes to the accounts for the year ended 30 June 2007 (themselves signed on 27 June 2008), it is stated that the accounts have been prepared on the basis that the company and the consolidated entity are "going concerns, which assumes continuity of normal business activities and the realisation of assets and the settlement of liabilities in the ordinary course of business". The notes go on to say: "The ability of the company and the consolidated entity to pay their debts as and when they fall due and the appropriateness of adopting the going concern basis of accounting are largely dependent upon the ability to secure the ongoing support of the company's major shareholders and the consolidated entity's bankers. As a result significant uncertainty exists as to the ability of the company and the consolidated entity to continue as going concerns and therefore as to the ability of the company and the consolidated entity to pay their debts as and when they become due and payable. The directors have determined that the going concern basis is appropriate based upon the ongoing support of the company's major shareholders and the consolidated entity's bankers. If the company and the consolidated entity are unable to continue as going concerns they may be required to realise their assets and extinguish their liabilities other than in the normal course of business and at amounts different from those stated in the financial report." 92 The note just referred to is Note 1(c). The report of the auditors reads in part as follows: "Without further qualification to the opinion expressed above, attention is drawn to the following matter. As disclosed in note 1(c) to the financial statements, the financial reports of the Company and Consolidated entity have been prepared on a going concern basis, based on the financial support provided by Opportune Pty Ltd, a company owned by Mr Lorentz and Mr Stoliar. Opportune Pty Ltd has agreed in writing to provide all necessary financial support to Kimberley Securities Limited and its controlled entities for a period of 12 months from the date of the Director's report in order for the Company and Consolidated Entity's financial reports to be prepared on a going concern basis. Mr Lorentz and Mr Stoliar have agreed in writing to provide financial support to ensure there will be sufficient funds in Opportune Pty Ltd to honour its financial support to Kimberley Securities Limited." 93 It is thus clear that the Opportune undertaking was of great importance not only in causing the directors of Kimberley to adopt the going concern basis in preparing the company's accounts but also as an element underwriting the auditors' report. 94 Against that background, it is pertinent to quote the following part of Mr Lorentz's cross-examination: "Q. I am going to stop you there because you have answered my question. Can I move on to the next one. Your position as director over that period of time has meant that you have regularly had to read the financial statements? A. Yes.

Q. Of Kimberley; is that right? A. That's right.

Q. And to read in particular the auditors' reports in those statements? A. That's right.

Q. And you had seen, had you not, prior to the most recent accounts prepared for Kimberley references in the auditors' reports to earlier versions of the Opportune letter? A. That's right.

Q. So when the Opportune letter was given-- A. As I said, most probably, yes.

Q. Yes, when the Opportune letter was given by you you appreciated at the time that it was most likely going to be referred to by the auditors in the report that would be part of the financial statements? A. Yes.

Q. And that those financial statements would be available for inspection by creditors? A. They are published.

Q. And that being published there would or might be creditors who would read the reference to the letter in the auditors' report and rely upon that support. You knew that, didn't you? A. It's a public statement, people read it and they take whatever notice they like of it, yes.

Q. You are agreeing with me? A. In a way, yes.

Q. And you were aware also, were you not, that Kimberley would be incurring debts on the basis that, if required, those debts that it incurred would be able to be met by funds that were provided by or through Opportune? A. The letter that you refer to has got a very specific qualification in it and it would relate specifically to the running expenses of the company.

Q. Well, Mr Lorentz, I will stop you there. I know that you put that position, but can you just deal with my contentions. You were aware when the Opportune letter was given that Kimberley would be incurring debts upon the basis that if required those debts that it incurred would be able to be met by funds provided by or through Opportune? A. For running expenses, yes.

Q. And you knew, didn't you, that if Opportune withdrew its support in respect of debts that had been incurred by Kimberley on that basis that Kimberley would be insolvent? A. That's right.

Q. When do you say a decision was made by Opportune to withdraw its support of Kimberley? A. 19th of December 2008." 95 It is thus made clear that two important questions will immediately confront any liquidator of Kimberley. The first is whether the letters provided year by year by Opportune to Kimberley - each styled "undertaking" - may be sued on by Kimberley so as to produce funds available to creditors in a winding up (a related question is, if so, whether Opportune is in any financial position to meet any judgment). The second question (which will arise in its starkest form if the undertakings are determined not to be the source of any useful recovery by Kimberley) is whether the directors of Kimberley - two of whom were also the directors of Opportune - acted consistently with the duties owed by them to Kimberley in relying on the Opportune letter, in relation to each relevant financial year, to present the financial statements in the terms in which they were in fact presented in reliance on the Opportune letter. 96 These are potentially very fertile lines of inquiry that will be available to a liquidator but will not be pursued while the affairs of Kimberley remain under the stewardship of its directors, two of whom are also the directors and owners of Opportune. 97 It is also relevant to note that Opportune is one of the related creditors who voted in favour of the adoption of the deed of company arrangement: see paragraph [22] above. 98 Benefits result directly to Opportune, one of the related creditors, because, under the deed of company arrangement, its potential liability to Kimberley will not be examined in the way in which a liquidator would examine it. That is prejudicial, or is likely to be prejudicial, to the creditors who voted against the resolution adopting the deed of company arrangement in that a potential source of recovery for the benefit of creditors as a whole will not be addressed. 99 Another similar matter must now be mentioned. It concerns Lohemi, the related entity of Kimberley which is said to be a secured creditor. Questions surround the security claimed by Lohemi and the amount, if any, for which it operates as security. In June 2008, Alcany Pty Ltd, an unrelated party, assigned to Lohemi securities previously granted to it by Kimberley. This followed actions by Lohemi, in the period September 2004 to December 2007, in paying moneys totalling some $5.7 million to Alcany ostensibly in reduction of the indebtedness of Kimberley to Alcany. Lohemi paid further moneys to the extent of some $1.2 million for the benefit of Kimberley after the assignment of the charge to it by Alcany. 100 The reports of the administrators proceeded on the basis that the charge apparently held by Lohemi was valid and effectual to secure some $7.9 million. A number of questions arise in relation to that understanding. In particular, payments by Lohemi to Alcany seem to have occurred over a period before the assignment by Alcany to Lohemi. There is also of necessity doubt about whether advances by Lohemi to Kimberley after the assignment are secured by the charge. The administrators referred to being in possession of legal advice supportive of the view that the charge held by Lohemi as assignee secures $7.9 million. That advice was given, however, by a barrister briefed by Lohemi's solicitor and on the basis of information in part given in conference by that solicitor and Mr Lorentz. There has thus not been, so far as the material provided by the administrators shows, any independent assessment of the matter from the sole and selfish perspective of Kimberley. 101 As with the matters involving Opportune, a liquidator of Kimberley would no doubt subject the Lohemi debt and the security supposedly held for it to rigorous examination with a view to discovering whether the security in truth operates in the way Lohemi's legal advice suggests it operates. 102 It is prejudicial to the interests of the Kimberley creditors who voted against the adoption of the deed of company arrangement that these matters involving Lohemi are, in the deed of company arrangement context, left to rest where they now are without the more rigorous and independent scrutiny that a liquidator could bring to bear.

Conclusions 103 I am satisfied as to the matters in each of paragraphs (a), (b) and (c) of s 600A(1). It is therefore open to the court to make an order or orders under s 600A(2): "The Court may make one or more of the following: (a) if the proposed resolution was passed--an order setting aside the resolution; (b) an order that the proposed resolution be considered and voted on at a meeting of the creditors of the company or body, or of that class of creditors, as the case may be, convened and held as specified in the order; (c) an order directing that the related creditor is not, or such of the related creditors as the order specifies are not, entitled to vote on: (i) the proposed resolution; or (ii) a resolution to amend or vary the proposed resolution; (d) such other orders as the Court thinks necessary." 104 There should be an order under s 600(2)(a) setting aside the resolution of 30 March 2009 that Kimberley enter into the deed of company arrangement. That will begin to redress the prejudice identified as relevant to s 600A(1)(c)(ii). Non-assenting creditors need to be put on to the same footing as the related creditors who, together with their associates, exercised votes so as to keep exclusively for the related creditors the position that the non-assenting creditors wished also to occupy. 105 An order under s 600A(2)(a) setting aside the deed of company arrangement will not, of itself, put an end to the deed of company arrangement: see s 600E. To that extent, it will not be a complete answer to the relevant prejudice. But, as Lindgren J observed in Deputy Commissioner of Taxation v Wellnora Pty Ltd (2007) 163 FCR 232; [2007] FCA 1234, a case involving the analogous provisions of s 600B, it is open to the court also to make such other orders as it thinks necessary (s 600A(2)(d)), including an order setting aside the relevant deed of company arrangement where the resolution in question is a resolution that such a deed be executed. His Honour also noted the capacity of s 447A to support such an ancillary order. I quote paragraph [180] of the judgment: "Section 600B(3) empowers the Court, if it sets aside the resolution, to make such further orders, and give such directions, as it thinks necessary. It seems reasonable to think that if a Court thought it proper to make an order setting aside the resolution, the Court would think it necessary to make a further order setting aside the DOCA - the very instrument that the Act required to be executed and to which the Act gave certain effects by reason of the resolution (see ss 439C(a) and 444A-444H). The setting aside of the resolution and of the DOCA go hand in hand. Section 600E preserves the validity and binding effect of acts done pursuant to the resolution before the making of the order. It was not suggested that this provision extended to preventing the Court from making an order setting aside the DOCA under s 600B(3)(b) and I do not think it does: under the Act, the passing of the resolution and execution of the DOCA are so closely interrelated that it would be irrational to provide for the resolution to be set aside without permitting the resulting DOCA to be set aside too. In any event, s 447A of the Act, whether read alone or as allowing modification of the operation of one or more of ss 445D, 445G and 445H of the Act is another source of the Court's power to set aside the DOCA which may be invoked by 'any … interested person' (s 447A(4)(f)), such as the DCT ." 106 The reference here to "the DCT" is a reference to the Deputy Commissioner of Taxation, who occupied there the position occupied by Grocon in this case. Lindgren J's observations, although made in a s 600B context, are equally applicable to a s 600A case. 107 I am satisfied that, in these proceedings brought by Grocon, there should be an ancillary order under s 600A(2)(d) terminating the deed of company arrangement. Termination is the appropriate concept because it is the concept found in s 445D upon which Grocon places direct reliance. In view of my findings relevant to s 600A(1), the making of such an order by direct reference to s 445D is in any event warranted. Those findings, coupled with the elimination of the supporting resolution of creditors, amply provide "some other reason" for the purposes of s 445D(1)(g). 108 Finally, there is the question of the regime under which Kimberley should proceed from this point. With the deed of company arrangement out of the picture, there are only two possibilities. The first is that Kimberley be administered and managed by its board of directors in the usual way, free from any form of external administration. In their further supplementary report to creditors dated 20 March 2009, however, the administrators made it perfectly plain that they did not recommend that course. They said in unequivocal terms: "It is not our opinion that the Administration should end (in the sense of returning control of the company to the directors) as the company is insolvent. " [emphasis added] 109 In the light of this conclusion of the administrators (which is not called into question in any way by the evidence before me), I am of the opinion that the only sensible and satisfactory outcome is the second of the possibilities to which I have referred. Kimberley should be wound up. That is the proper and appropriate measure in relation to an insolvent company. Section 600A(2)(d) will support a winding up order. So too will s 447A: Deputy Commissioner of Taxation v Woodings (1995) 16 ACSR 266; Re Paradise Constructors Pty Ltd [2004] VSC 92; (2004) 8 VR 171. There is discussion at paragraphs [303] and following of the judgment in Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235; (2005) 226 ALR 510 about matters that require attention in relation to the making of a winding up order in circumstances of this general kind. I shall stand the proceedings over for a short time so that those matters can be addressed and liquidators' consents to act can be brought in. **********

16/06/2009 - Typo - Paragraph(s) 4 17/04/2013 - amended Counsel for the plaintiff - Paragraph(s) coversheet

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